Wednesday, April 27, 2016

Virgin Media Access Upgrades Illustrates Principle That Apps Matter More than Access Method

In the broader Internet ecosystem or the “telecommunications” business, it ultimately is the apps that matter, and less the details of infrastructure. Consider the way Virgin Media plans to upgrade access to 17 million U.K. households by 2019.

At least a quarter of the four million locations to be upgraded as part of Project Lightning will be connected using fiber to the home platforms, rather than the traditional hybrid fiber coax platform.

Customers will not see a difference, as the same set of services and Internet access speeds will be available to all potential customers, no matter what the access method.

Likewise, all consumers will use exactly the same modems and TV set-top boxes, no matter what the access method. The way Virgin Media is deploying its FTTH network uses a protocol known as Radio Frequency Over Glass (RFOG).

RFOG allows the cable operator to use the same headend and customer premises gear, no matter what the access platform, as well as standard HFC transmission techniques.

Only recently, with the rise of the Internet, has “access” actually become a mass market business for telcos, cable TV, fixed wireless and satellite providers. Until then, business models were based on apps (voice, then entertainment video, and later mobile voice and texting.

We sometimes miss the importance of “access” (dial-up, then broadband Internet access) now becoming a “product,” which consumers can buy on its own, in order to use all other lawful apps available on the public Internet, or managed services delivered through IP network tunnels.

Not until “Internet access” became a product did we start to hear about “dumb pipe” business models or the risk of “commodity” pricing and roles.

But that illustrates an important fact: business models in the consumer space always have been built around use of applications. In addition to that, we now have an essential function (Internet access) that is required so people can use apps.

That is not to say managed services have gone away; they haven’t. Carrier voice, messaging, linear video and mobile services remain dominant revenue sources.

Still, aside those managed services, the “dumb pipe” access function is becoming the growth engine. For this reason, all discussions of “dumb pipe” business roles and models often miss the point.

An ISP cannot avoid being a supplier of “dumb pipe” Internet access. In addition to that, many access providers will supply important managed services as well (carrier voice, messaging, video). But the dumb pipe portion of the business is driving growth, not the managed services.

The issue is how much, over time, the access “business” becomes an access “function” provided by some entity with multiple revenue sources, able to supply the access function at lower cost precisely because such access is an input to the overall business model, not the whole business model.

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